Purpose of Derivstives
Users can undertake derivative transactions to hedge an existing identified risk on an ongoing basis during the life of the derivative transaction or for transformation of risk exposure, as specifically permitted by RBI. Market makers can undertake derivative transactions to act as counter parties in derivative transactions with users and also amongst themselves. The major objectives/purpose for undertaking derivative transactions has been explained below:
Objectives/Purpose |
Reasons |
Balance SheetManagement |
· Use of derivatives by the Bank to manage its balance sheet exposures.· The Bank will use derivatives as a means for managing the interest rate, liquidity and foreign exchange risks arising from its banking operations |
Client servicing |
· Offering derivative products to existing and new clients as an additional product from the Bank.· The Bank will offer derivative products to enhance product offerings to its existing clients as well as to build new client relations. |
Proprietary Trading |
· The Bank will undertake derivative transactions to earn trading profits.· The Bank’s treasury may take view-based transactions as well as offer two-way quotes on derivatives within the limits prescribed by this policy |